Industry Insights

Oil in the digital age

Amidst sluggish oil prices and an uncertain global market, oil and gas companies are finding inventive ways to improve efficiency and increase production. Digitisation and automation are increasingly finding their way into the industry. Now, as digital disruption rapidly gains momentum across industries, oil executives must take the lead in deploying digital technologies in exploration, extraction and production, or risk being left behind.

The oil industry was once a pioneer of digitisation, using 3-D seismic data and supercomputers to find resources, for example. But when oil prices rose above $100 a barrel in the past decade, priorities changed, and technological innovation generally took a back seat. Ulrich Spiesshofer, Chief Executive of Swedish-Swiss automation firm ABB says the industry only uses about 5% of its seismic data for exploration. In production, McKinsey estimates, less than 1% of data from oil rigs reaches oil industry decision makers.

Extraction, due to its difficult and dangerous nature, is especially well-suited to digitisation and automation. When drilling in rock formations underground, broken or impeded equipment often leads to costly work stoppages. As a solution, oil services firm Baker Hughes has developed what it calls the first “automated drill bit”, which self-adjusts based on the characteristics of the rock. Underwater, robots are being deployed to fix such problems, according to McKinsey.

A key goal on the surface is to decrease the number of people on oil rigs. James Aday of consulting firm Wood Mackenzie points out that automation is already used on drilling platforms. As The Economist notes, more rigs are being controlled semi-remotely; for example engineers in Houston use real-time data from oil rigs in the Gulf of Mexico to make decisions, eliminating the need to transport them to the site. “The aim is to bring the data to the expert, not the expert to the data”, says Peter Zornio of Dubai-based automation firm Emerson Process Management.

For all its promise, digitisation – particularly data, sensors and automation – will bring new challenges to the industry. Since oil rigs are critical infrastructure, oil companies will need to gain expertise in cybersecurity and invest in ways to protect their data. On the upside, more extensive digitisation could help draw millennials to the oil industry. This talent will be essential to replace a workforce facing retirement.

The oil industry shares universal concerns about digital technology diminishing its workforce, though geologists and engineers are generally confident their skills will still be needed. Further, tech start-ups face massive barriers to entry, such as high capital requirements, which should protect incumbents. Another more industry-specific concern is the possibility of technological innovation making oil and gas more accessible, thus eroding its value as a precious resource.